Sep 14, 2012

Tunnel vision and mobile payments

Slight shifts in perception have been occurring in the payment industry, opening the way for transformational changes in how we look at mobile. Focusing too much on the payment portion creates tunnel vision that can get you clobbered when you miss the important things happening outside this narrow focus.

A first shift in perception, the growing realisation that NFC is not the holy grail, reached a tipping point a few months ago. This opened the possibility to explore other ways of using a mobile phone to transact. Square and PayPal both announced a simple check-in function based on geolocation, and the iPhone 5 was announced this week, sans NFC, confirming everyone's suspicion that we need to look elsewhere for solutions.

A second shift, Square's coup with Starbucks, has brought a fresh focus on retailer driven solutions. Square will be processing all of Starbucks' credit and debit card transactions, and will modify its consumer app to fit Starbucks' existing mobile payment method. Suddenly, this news acts as a catalyst to get the industry to adopt a wider view of mobile payments. A cure to tunnel vision if you like.

Wikipedia defines tunnel vision as the loss of peripheral vision with retention of central vision, resulting in a constricted circular tunnel-like field of vision. This is exactly where we have been the last few years, waiting for carriers, phone manufacturers, banks, payment networks and merchants to all massively adopt NFC. Now we can step back and see the peripheral better.

Starbucks is the most successful mobile payment program in North America and most likely the rest of the developed world. All of the talk about Asians massively using their mobile phones to pay every day is a myth. There are things happening and some people using mobile, but it is minimal.

The Starbucks card now represents 25% of sales, with most of this happening through traditional plastic cards. Customers become card members to enjoy rewards, then some migrate to mobile payments for greater convenience. That is the direction of the customer acquisition flow. The rewards program drives mobile payments, so focusing on the overall program is the key. It doesn't happen in the other direction.

The focus on Starbucks is opening the peripheral vision a bit wider. Google has lots of graphics showing how its NFC phones can merge payments, coupons and loyalty cards all in one simple transaction. This requires such a deep integration into existing POS systems that the claims have always seemed farcical to me. 

Starbucks has already shown that there are simple, low cost ways to achieve the same thing. Starbucks shows that the focus should be on the retailer's entire rewards program, with mobile payments as a feature available to those customers that prefer using their mobile phone to pay. A holistic approach that takes in a much larger group of customers.


thad said...

Too true Aneace. The mobile world is about to have an explosion of creativity and we get to play!

James Christensen said...

Aneace, a great view, I think your experience in the early chip days is showing through! The largest company in the world passing on NFC at this critical time should cure the tunnel vision.
Existing low cost technology should allow value add, customer retention and acquistion programs to drive mobile payments. This will be done at the retailer level and if a majority of retailers had Starbucks success mobile payments will be huge.

Bob Skattum said...


Great observation. For too long, many in the payments world have been waiting for AAPL to "bless" NFC as the "new way" ... and for ISIS to solve the problem that every one of the players "behind the curtain" wants to get a basis point, or two, or one hundred for building out the infrastructure. Yet, consumers have not indicated that they want the ability to hold their smartphone up to a terminal to pay ... they will use whatever vehicle the retailer provides if it allows them to improve their buying experience and to generate rewards. Rather than re-train the consumer, we need to be driving the choice, as always, at the merchant level.